2012 Trends Report Card, Part III

Here's Part III of our report card of how we did with our 2012 predictions. 

Media Trends

1.     More viewers will cut the cable cord. We nailed this one as articles appeared across the media spectrum (print, online, blogs, etc.) with reported and first-person accounts of “cord cutting” as Americans tried to replace cable TV service either as to save money or to try new watch-anywhere apps such as Hulu Plus and Netflix.  Media outlets covering the story included the Wall St. Journal ("Over-the-Air TV Catches Second Wind, Aided by Web," “Cable Firms Making Offers Cord-Cutters Can't Refuse,” “Cable Firms Making Offers Cord-Cutters Can't Refuse” & A Year Without Cable: Is it possible to survive on Netflix and Hulu alone?), New York Times (“Disruptions: TV Makers Ignore Apps at Their Own Peril” & "In Search of Apps for Television"), Bloomberg BusinessWeek (interview with Comcast’s CEO "cord cutting”),  and others. Grade: A+.

2.     Converging media will continue in 2012. We still think lines of cooperation and competition will continue to blur among media properties: radio stations now post photos and text articles on their website while newspapers feature video channels. And with cord-cutting, more people are watching TV shows on anything but a TV, mostly smartphones, tablets and computers. However, this was a bit topic for media coverage. Grade: B-.

3.     E-books will improve their experience by providing new interactive and multimedia content. We said that with “the growing capabilities of e-readers,… expect e-textbooks to include interactive exercises, and nonfiction e-books to include more video, photos, and audio, while fiction books will come packed with featurettes much the way DVDs are packaged.” Bloomberg BusinessWeek validated that prediction with an article, “Easier E-Books with Inkling,” that said, "E-books will improve their experience by providing new interactive and multimedia content." We still think this will happen but we were optimistic to think e-book featurettes would be a regular item in 2012.  We now think that will happen within three to five years.  Grade: C+/B- for being too ahead of the game on this.

We'll issue more grades in tomorrow's post.

In the meantime, let us know if you have any questions or comments.

Fee, Fie, Foe -- 3 Lessons learned when companies mishandle how they communicate their new fees

In the wake of Netflix's mishandling its new pricing structure and sub-brand (Qwikster, in case you misspelled it), Bank of America recently also blundered in announcing a new charge for debit card customers (check out the Time Magazine about it here and a Financial Times article here).

With a US economy that continues to fluctuate wildly, and continued bad global economic news, it's probably a safe bet that more companies are going to look to raise prices and implement new charges to boost their embattled bottom lines. It's also a safe bet that as they do so, other companies (besides Netflix and BofA) will mishandle their communications around the price hikes.

You can check out Nine Lessons from Netflix and the 'Half Apology." 

Here are some thoughts about lessons from BofA:

1. Some companies may feel that their customers are captive and don't have much of an alternative, but even if that's true -- and I think it's more difficult to change banks than to switch TV channels -- companies need to realize there is a price to pay for mishandling communications. Beyond a company's reputation, publicly held companies have seen their stock prices fall as a result of negative consumer backlash.
2.  Companies need to provide context for restructuring their prices and fees. Blaming new government regulations, as BofA has done, will likely appeal to some customers, but when so many people think the government bailed out the banks while holding consumers accountable for bad mortgages will not generate much sympathy overall or provide enough of an explanation as to why BofA will soon start charging $60 a year for the privilege of using debit cards instead of checks or credit cards.  Especially right now, when there's a lot of anger towards Wall St., with in-person and online protests like #OccupyWallStreet. So for BofA and other banks like Chase, SunTrust, Wells Fargo, Regions, establishing new fees will likely be seen as another example of banks putting their interests ahead of their customers. 
3. Communicating solely by Twitter can be partially effective to get what amounts to a headline, but is not effective in providing detail. Our advice to BofA: Consider steps to take to mitigate the consumer backlash, especially since some reports attribute the drop in its share price to the negative consumer response to the new fees. If the only place BofA has addressed this issue is on its Twitter feed, @BofA_News, the bank should start communicating beyond Twitter.  First, because its 140-character limitation, Twitter is not the right means to communicate a complicated message. Second, fewer than 9,000 people currently follow @BofA_News so the bank can't be sure it's actually and effectively reaching its customer base. 

For example, the bank should prepare a detailed FAQ inserts to accompany its monthly statements and post that information on its website, about the new fee. The FAQ should explain the economics of the fee, should include a statement that explains the reluctance with which BofA realized it had to initiate the fee, and include information about ways that customers can avoid being charged the $5 per month fee -- for example, apparently using a debit card at an ATM won't trigger the fee but using a debit card at a retailer will. Meanwhile, explaining that Platinum customers will be exempt from the debit card fee, will not placate the majority of customers who will soon be charged the fee.

Other companies considering price increases or the implementation of new fees should learn a lesson from Netflix, which did an arguably poor job in communicating the context for its increase of fees. Even if you're in a position where you must pass along higher fees, it helps to explain the reasons for the increase. Otherwise the increase will seem like a slap in the face to its customers.  Again, I have no doubt that we'll see more companies considering raising prices and charging new fees in the near future -- and that there will be negative response if the increases are not communicated effectively.  What's also clear is that companies that mishandle their price increases may also pay a price -- in their stock price, as BofA and Netflix have seen.  With the right planning, companies can announce price changes that don't have to lead to crisis communications. 

Nine Lessons from Netflix and the 'Half Apology"

Until two months ago, Netflix offered one monthly fee of $7.99 to order videos by streaming and DVDs by mail. Then Netflix announced it would charge its customers $7.99 for a subscription to its streaming service and another $7.99for Netflix' mail-order service -- representing a 100 percent increase.

Then, on Sunday, Reed Hastings, CEO of Netflix posted an explanation of sorts: "An Explanations and Some Reflections" only to cause more problems for Netflix. Hastings may have intended it to be an apology, but one person termed it a "half apology," and I think that's about right.

Here's a list of nine lessons learned from this incident:

1. Companies need to provide context when the price customers are going to be charged will increase significantly. Changing the fee can be a critical time in almost any company-customer relationship. But that's especially true when the increase is so dramatic. Hastings said he should have provided more of an explanation about why the company increased its subscription fees. But Hastings's explanation notes that a full justification "wouldn't have changed the price increase." 
2.  Waiting two months to respond was probably too long. The company lost about a million subscribers recently -- probably due to the price hike. Hastings said the company is moving and evolving quickly, but that's not the impression one gets from a two-month lag time before Hastings responded.
3. When communicating with customers, make sure the information you provide them is focused on their needs. While Hastings's  explanation on his blog did a fine job of laying out the company's vision and goals, it didn't really address customer concerns.  Instead, Hastings used the blog post to explain why Netflix is changing the name of its DVD-by-mail service to Qwikster, and to prepare customers for what that change will entail. His explanation was focused on the company, not the customer. Hastings explanation is focused on discussing the upcoming changes from the company's perspective, not the customers, and is tone deaf in addressing customers' needs and perspectives.
4. When launching a company, a blog post on a Sunday night might not be the best strategy. It's difficult to know how much planning when into the spin-off of Qwikster, but the company look unprepared with a lack of a Twitter ID, Facebook page and website, even as placeholders.  
5. If you do use your blog to launch a new business, don't bury the lead.  Hastings' post first mentions the Qwikster name change midway through the post. It made Qwikster seem an afterthought. The post is fairly clear on what the Qwikster experience will be like -- i.e, Netflix with a different name -- but I don't think it does a good job of serving as a launch pad for the new brand. 
6. When seeking to appease your critics, try to lock down areas that might spark further criticism.
   
   As laid out in the post, Qwikster is likely to continue to rub customers the wrong way. Customers have to log onto separate sites to select a DVD-by-mail and to download a video; they have to look at reviews on two different sites (because Netflix and Qwikster will now offer separate customer reviews); they have to update credit card and other information into two different systems, and they will receive two separate charges on their credit card statements. I understand the need for separate brands but there could have been ways to streamline the customer experience.
7. Naming a new brand is very difficult these days; while it's hard to come up with a great name -- and I think Netflix is a great name -- it should be easy to identify a lousy name.  For example, Qwikster.  It's easy to misspell. It doesn't actually deliver on its brand promise (instant downloads are fast; delivery by mail is not quick). And it sounds too much like Friendster.  That said, even though I don't like the Qwikster name, I think the reason behind changing the name makes sense because separating the Netflix brand from DVDs-by-mails may have a better chance for survival if people no longer associated Netflix with its iconic red envelopes. After all, AOL is still associated with slow dialup service, and it gave up that business a few years ago. 
8.  If you're going to claim you messed up, you should explain the steps you will take to prevent a similar mistake in the future. Especially when you identify the nature of the mistake as being not communicating enough.  Hastings may mean for this to be his "sincere apology" but he doesn't outline how he'll make sure that both Netflix and Qwikster will make sure to overcommunicate critical information in the future.
9. Listening and responding to customers' concerns goes beyond branding -- even though it is a big issue for the Netflix brand. Getting this wrong can also exact a real cost to the business. In this case, Netflix has lost subscribers (even as its total subscriber base is larger this year than it was last year; the company has lost about a million subscribers over the past two months).  And Netflix has also seen its stock price drop, too, and that has financial implications as the company continues its global push.

Let me know if there are additional lessons to be drawn from Netflix.